Russia's 1998 ruble collapse and sovereign default

Russia's fixed exchange rate regime, which the Bank of Russia defended within a band of roughly 5.3 to 7.1 rubles per dollar through the mid-1990s, came under intense pressure in 1997-98 as the Asian financial crisis triggered capital flight from emerging markets just as oil and other commodity prices were falling, and a chronic fiscal deficit, weak tax collection, and the costs of the war in Chechnya left the government unable to meet its obligations. The central bank raised interest rates as high as 150% in an attempt to keep investors in ruble assets and defend the peg, but by July 1998 interest payments on government debt were running roughly 40% above tax revenue, and confidence collapsed. On August 17, 1998, the government devalued the ruble, defaulted on domestic debt, and declared a 90-day moratorium on foreign creditor payments; the currency fell from about 6 to 20-25 per dollar within weeks, the economy contracted roughly 5%, inflation reached 84%, and the banking system's aggregate capital dropped close to zero.